Vertex SPAC - Paying a high price for acquisition of 17LIVE

Summary

• Proposed combination with 17LIVE. Vertex Technology Acquisition Corporation (VTAC) has announced a proposed business combination with 17LIVE, a leading live-streaming platform in Japan and Taiwan with about 550,000 monthly active users (MAU) in 1H FY2023 and 87,000 contracted streamers as of 30 June 2023. 
• 17LIVE is targeting to tap on growing live-streaming industry. The live-streaming industry is forecasted to expand at a compounded annual growth rate (CAGR) of 22.0% in Japan and 11.2% in Taiwan from 2023E to 2027E, according to forecasts by Frost & Sullivan. In addition, 17LIVE is aiming to grow in the virtual live streaming (V-Liver) segment and tap into new markets such as Southeast Asia. 
• Near-term prospects muted. Despite the growth in the live-streaming industry,  17LIVE’s MAU has declined from 2H21 following the lifting of COVID-19 pandemic restrictions. In addition, average revenue per spending user (ARPPU) remains under pressure as users returned to more offline entertainment. These headwinds have more than offset initiatives by management to drive higher user engagement. Other key risks include rising competitive threats, inability to retain streamers, and regulatory risks.
• Redeem VTAC shares. We value a 100% equity stake in 17LIVE at US$460 million (S$622 million) based on a discounted cash flow (DCF) method, below the purchase consideration of up to S$922.9 million. As the acquisition valuation appears high in our view, we recommend shareholders to redeem shares in VTAC and sell VTAC warrants. Shareholders should note that the deadline to submit the share redemption form is 28 November 2023 at 2.00 p.m. 

Proposed business combination with 17LIVE

Vertex Technology Acquisition Corporation (VTAC) has announced a proposed business combination with 17LIVE, a leading live-streaming platform in Japan and Taiwan. 

17LIVE generates revenue primarily from its live streaming businesses by selling virtual points to its users, who in turn use them to purchase virtual gifts for live streamers and virtual live streamers (V-Livers) or play in-app games.  

The platform has about 550,000 monthly active users (MAU) in 1H FY2023 and 87,000 contracted streamers as of 30 June 2023. 

17LIVE is targeting to tap on growing live-streaming industry

The interactive video streaming market in Japan has grown at a four-year CAGR of 53.6% between 2018 and 2022 to reach a market size of USD 1.8bn, according to Frost & Sullivan. 

The market is forecasted by Frost & Sullivan to grow further by a four-year CAGR of 22.0% between 2023E and 2027E, driven by the rising popularity of V-Livers. 17LIVE has a strong market position in Japan, where its estimated Average Revenue Per Paying User (ARPPU) reached US$301 in 2022, exceeding that of peers Pococha and Showroom. 

17LIVE also has a strong market position in Taiwan, where the live-streaming market in Taiwan is forecasted to grow at slightly slower pace with a four-year CAGR of 11.2% between 2023E and 2027E as it is a more mature market. 

In addition, 17LIVE is targeting to grow by expanding in the V-Liver segment. The V-Liver in Japan is forecasted by the IMR Consultant to grow at a CAGR of 41.2% in 2023 to 2027E. 

The company aims to leverage on its capabilities from its core live streaming business to further invest in V-Liver proprietary IP and technology, and will develop V-Liver content and hold online competitions and offline events. 

As of 2Q2023, 17LIVE has 2,000 average V-Liver monthly average streamer (MAS), a 6.5 times increase compared to the previous year. 

In addition, 17LIVE plans to expand into high-growth markets including Southeast Asia, which is expected to expand by a four year CAGR of 19.2% from 2023 to 2027E according to the IMR Consultant. 

Near term prospects muted 

Despite the growth in the live-streaming market, 17LIVE’s group monthly average users (MAU) declined from a peak of 1.53 million in 2H21 to 550,000 in 1H23. 

The fall was led by Japan, where MAU fell from 848,000 during the COVID-19 pandemic in 2H20 to 245,000 in 1H23. 

In addition, the average ARPPU for the group declined to US$294 in 2022 from US$358 in 2021, as users returned to more offline entertainment with the re-opening. 

17LIVE has launched initiatives to drive higher user engagement and increase the spend rate to mitigate the impact of falling MAU and ARPPU. 

Acquisition valuation appears high

We value a 100% equity stake in 17LIVE at US$460 million (S$622 million) based on a discounted cash flow (DCF) method, below the purchase consideration of up to S$922.9 million. 

As the acquisition valuation appears high in our view, we recommend shareholders to redeem shares in VTAC and sell VTAC warrants. 

Key risks include rising competitive threats, inability to retain streamers, and regulatory risks, amongst others. 

To read our analysis in more detail, download the full report here. 

SGX x SIAS x Beansprout Webinar:  What shareholders need to know about VTAC’s proposed de-SPAC with 17LIVE

Vertex Technology Acquisition Corporation (VTAC), has proposed a business combination with live streaming platform 17LIVE which operates in Japan and Taiwan, with a presence also in Hong Kong, Singapore, the US, India, Philippines and Malaysia. What does this mean for shareholders and what are some key dates & milestones, and how should shareholders prepare?

Join us in this webinar to understand more about the proposed de-SPAC, and what it means for shareholders.

We will cover the following topics in the webinar:

• Introduction to VTAC and the proposed target 17LIVE
• Understanding and analysing the live streaming industry
• What shareholders need to know prior to the EGM

Register for the webinar here. 

Important Disclosures

Beansprout was appointed by SIAS and received monetary compensation from SIAS to provide independent research on the de-SPAC of Vertex Technology Acquisition Corporation Ltd.

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